IBM’s Corporate Evolution by Design

An iconic brand, IBM has evolved over the years as it introduced new technology and products. What hasn’t changed, however, is the corporate culture. In the 1960’s, longtime CEO Thomas J. Watson Sr. knew that in order to be successful a company, IBM had to adhere faithfully to its core beliefs. Here’s how Sam Palmisano has reinforced core company ideals.

How did IBM manage it? Chief Executive Sam Palmisano, who studied history at Johns Hopkins University in his hometown of Baltimore before he launched his 38-year IBM career, traces the company’s strength back to a handful of core beliefs that have been handed down from generation to generation of IBMers.

When asked to name the most important lesson that anybody could learn from IBM’s history, Palmisano doesn’t hesitate: “You have to be willing to change your core, and you have to be ahead of the shift.” It’s one of the company’s beliefs.

Palmisano learned this lesson the hard way. Back in the early 1990s, he was the executive assistant to then-CEO John Akers at a time when company was struggling mightily. IBM had long dominated the computer industry with its mainframes, but it was slow to respond to shifts in technology and to customer demands. IBM was saved through a combination of innovation, severe cost cutting and renewed attention to customers. Palmisano, who became IBM’s chief executive in 2002, vowed that the company would not be caught flatfooted on his watch.

He harkens back repeatedly to a famous speech that Thomas J. Watson Jr. made in 1962 at Columbia University. Watson, who was then the company’s chief executive, told students and faculty members that his father, longtime CEO Thomas J. Watson Sr., had intentionally crafted a corporate culture based on a set of beliefs. These values guided all of the employees in their daily activities and decisions. Watson said the most important single factor in an organization’s success is faithful adherence to its beliefs, and that “if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life.”

Watson’s audience didn’t know it, but he was in the midst of planning a revolution at IBM. Even though the company was very successful, he had decided to completely revamp its product lineup and the way it was organized. Clearly, he was confident that IBM’s beliefs would sustain it through the upheaval. His big risky bet paid off. The System 360 family of computers, announced in 1964, put IBM on top of the tech industry for decades to come.

Palmisano’s changes have been less dramatic but just as radical. Over the past decade he has sold off businesses that make commodity products, including the company’s PC division, and shifted to higher-value and higher-margin software and services. At the same time, he completely reorganized the company’s sprawling global operations. IBM now performs work anywhere in the world where it can be done the most efficiently and effectively on behalf of its global clients.

IBM’s biggest bet today is its Smarter Planet strategy. By harnessing the power of sensors, networks, analytical software and cloud computing, IBM aims to help companies, communities and governments make the world’s natural and human-made systems work better. It’s difficult to imagine a higher calling for a technology company–nor a more daunting task.

Will IBM persevere for another 100 years? Hard to predict. It has leadership characteristics that seem to promise longevity. First, you will not see complacency among IBM’s executives. The company has internalized the lessons learned from its near-death experience in the early 1990s. Second, there’s a determination to constantly transform, to survive and thrive–come what may.

Palmisano personifies the company’s culture. It’s led by people who are hugely ambitious, willing to take risks, absolutely relentless in their pursuit of their business goals and confident that the company’s culture will sustain it for many years to come.